It is established law that varying the guarantee obligations in a guarantee could release those obligations unless the guarantor consents to the variation or the variation is immaterial or incapable of prejudicing the guarantor. This stems from the principle laid down in Holme v Brunskill [1877] 3 Q.B.D. 495 (“Holme”).

In the recent case of National Merchant Building Society Ltd v Bellamy and Another [2012] EWHC 2563 (Ch), the High Court considered whether variations to an ‘all monies’ guarantee would discharge the guarantors’ liability under it.


The Claimant, National Merchant Building Society (the “Society”), was an industrial and provident society operating for the benefit of its members. The Society entered into bulk contracts with purchasers for the supply of goods at discounted rates, the benefit of which it passed on to its members. The Society provided each member with a credit limit for the value of goods it could purchase and was able to do so by obtaining credit insurance through Euler Hermes UK plc (“Euler”).

CTF Supplies Limited (“CTF”) became a member of the Society and agreed to adhere to its rules or risk expulsion. However, CTF broke several of these rules including failing to provide audited accounts, which led to Euler withdrawing its credit insurance cover. As a result, the Society sought personal guarantees from CTF’s joint partners, Mr Mallet and Mr Bellamy (the “Defendants”) so that Euler would reinstate cover.

The Defendants gave a continuing guarantee in consideration of CTF remaining a member. The guarantee stated that the Defendants “jointly and severally guarantee the due payment to [the Society] of all sums, which are now or may hereafter become owing to [the Society] by [CTF].”

After the guarantee was given, CTF continued to be a member of the Society, during which time, the Society increased CTF’s credit limit on various occasions without the consent of the Defendants. Eventually, CTF fell into further and substantial arrears, and Euler decided to withdraw its cover completely.

The Society sought to recover payments due under the account plus interest from the Defendants pursuant to the guarantee they provided.

The Issues at Trial

The Defendants disputed liability on the following grounds:

1. that there had been no consideration for the guarantee;

2. the guarantee had been produced by duress;

3. the guarantee was invalid due to undue influence; and

4. the variations to the contract between CTF and the Society discharged liability.

The Decision

In respect of the issue of consideration, the Court found that the Society’s willingness to comply with the Defendants’ request for CTF to continue as a member (even though it had become liable to be expelled as a result of its failures) was sufficient consideration.

Regarding the second contention, the Court held that there had been no illegitimate pressure causing the Defendants to enter into a contract, as was so required to constitute economic duress under the test laid down in The Evia Luck/Dimskal Shipping Co.S.A. v International Transport Workers Federation [1992].

In considering the issue of undue influence, the judge had regard to the approach taken in Royal Bank ofScotland v Etridge [2002] 2. A.C. 773, which held that a guarantee can become invalid if a third party fails to ensure the guarantor is properly advised. However, the Judge distinguished this case on the basis that no third party was involved, and moreover, the first Defendant was an experienced businessman, who had the opportunity to seek legal advice should he have desired.

In support of the final contention, the second Defendant sought to rely on the established principle in Holme. However, the judge held that the principle did not apply to this case given that the Defendants’ guarantees did not apply to a specific contract but rather all sums “now or hereafter due” by CTF. The judge considered that in respect of guarantees, the Court should ascertain what the guaranteed obligation was, which, following the approach laid out in Burgess v Eve L.R. 13 Eq. 450, must be ascertained from the words of the guarantee and the surrounding circumstances. If the guarantee extended to future obligations, the judge inferred it must “necessarily follow that it cannot be affected by agreements which alter or increase the liability of the debtor.” The judge believed that the Defendants’ guarantees could not be clearer in that respect, and found that the wording of the guarantee clearly covered anything that was due or would become due with no limit.

Accordingly, the Court ruled that the Defendants were liable for CTF’s debts.


The decision serves as a useful reminder that guarantees should be carefully drafted if they are to have a desired effect. The obligations in an all monies guarantee need to adequately capture future liabilities or risk falling foul of the principle in Holme if varied without the guarantor’s consent.

If you wish to discuss this update or any issues it raises, please contact James Walton or the partner with whom you usually deal.